Has twilight come to the Sun Belt?

Saturday

May 30, 2009 at 12:01 AMMay 30, 2009 at 2:54 PM

For a generation or more, the Sun Belt thrived like no other region in America — a growth so steady it felt as though the boom would never end. But now it has, replaced by a bust that has left some swaths of the region suffering as severely as anywhere in the current recession. What brought the dark clouds to the Sun Belt, and are they here to stay?

Todd Lewan

We first heard the term decades ago: The “Sun Belt” was just starting a run of phenomenal growth — and no wonder. It conjured a sunny state of mind as well as a balmy place on the map.

Everybody, it seemed, wanted a spot in the sun.

Industries such as aerospace, defense and oil set up shop across America’s southernmost tier, capitalizing on the low involvement of labor unions and the proximity of military bases that paid handsomely, and reliably, for their products and services.

Later, San Jose, Calif., and Austin, Texas, developed into high-tech nerve centers; Houston grew into a hub for the oil industry; Nashville became a mecca for music recording and production; Charlotte, N.C., transformed itself into a center for low-cost banking and finance; and then there were the new Dixie Detroits, places like Canton, Miss., Georgetown, Ky., and Spartanburg, S.C., that began rolling out Titans, Camrys and BMWs.

Meanwhile, other warm-weather havens offered their own variants of the Sun Belt dream — as Fountains of Youth for 60-and-up duffers, as Magic Kingdoms for fun-seekers, as Cape Canaverals for middle-aged northerners looking to launch their second acts.

Air conditioning, bug spray and drainage canals that transformed marshes into golf-course subdivisions — these innovations, plus the availability of flat, low-taxed land attracted migrants from Brooklyn and Cleveland, Havana and Mexico City to locales once dismissed as too hot, too swampy, too dry, too backwater-ish.

For a generation or more, the Sun Belt thrived like no other region in America — a growth so steady it felt as though the boom would never end. But now it has, replaced by a bust that has left some swaths of the region suffering as severely as anywhere in the current recession.

What brought the dark clouds to the Sun Belt, and are they here to stay?

Interviews with economists and demographers across the region, and data from The Associated Press Economic Stress Index, a month-by-month analysis of foreclosure, bankruptcy and unemployment rates in more than 3,000 U.S. counties, suggest that the answers are not all encouraging.

———

Some cities — Las Vegas, Phoenix, Fort Myers are good examples — hitched their floats to housing bubbles and got caught up in development that depended largely on, well, development itself, rather than sustainable, scalable, productive industry, economic analysts say.

It’s in these places where the economic meltdown “will likely find its fullest bloom,” Richard Florida, the urbanist and author, wrote recently in an Atlantic Monthly article titled “How the Crash Will Reshape America.”

AP Stress Index figures, which calculate the economic impact of the recession on a scale of 1 to 100, illustrate how the downturn has played out in some of these communities:

—In Maricopa County, home to Phoenix, the Stress Index more than doubled from 5.12 at the beginning of the recession in December 2007 to 12.67 in March 2009, worsened by a foreclosure rate that nearly tripled.

—Mounting foreclosures in Las Vegas’ Clark County drove up its Stress Index score from 10.5 at the start of the recession to 19.3 in March 2009.

—In Lee County, home to Fort Myers, unemployment has doubled and foreclosures have soared 75 percent since the recession began, lifting its Stress Index from 10.5 to 19.98.

The boom in parts of the Sun Belt was, in many respects, a growth machine that banked on wishful thinking, on the hope that an unending stream of new arrivals would forever inject their money into construction and real estate.

In the Sun Belt’s newer, shallow-rooted communities, the roadkill is most evident: Where once there were “boomburbs,” there now stand “ghostdivisions.” Where property-flipping was once almost a middle-class sport, joblessness and “For Sale by Owner” signs reign.

The fallout is traceable in other ways, too. Nevada — the only state with a lower proportion of native residents than Florida — has seen net migration plunge 61 percent in two years; Arizona, 55 percent.

Were it not for immigrants, many of them from Latin America, and for fertility, the Sunshine State would actually have lost population last year — an “astounding development in the Florida experience,” says Bill Frey, a senior fellow and demographer at the Brookings Institution in Washington, D.C.

Does this mean we’ve witnessed the rise and fall of the Sun Belt? Will those who swept into these Miracle-Gro states get swept out just as quickly, leaving behind a sprawl of hollow houses, cul-de-sac moonscapes and mosquito-infested pools — the stucco ghettos of the 21st century?

Or will the latest downturn merely force the Sun Belt to reinvent itself again?

———

The housing bubble in many places revealed an obsolescent model of economic life, in which cheap real estate encouraged low-density sprawl and created a work force “stuck in place, anchored by houses that cannot be profitably sold,” Florida wrote in his March article.

What to do? Scrap policies that encourage homebuying, he suggests, and give incentives to more mobile renters who can go where the jobs are.

In the digital age, he says, industries will likely cluster in “mega-regions” of multiple cities and their surrounding suburban rings (e.g., the Boston-New York-Washington corridor). These areas will surge, lifted by the brainpower of educated professionals and creative thinkers that turn out “products and services faster than talented people in other places can.”

But if expansion is now halted in the Sun Belt’s “sand cities,” where will the tax money come from to pay for college upgrades?

Like Looney Toons characters who, suspended in mid-air, look down to behold they’ve run off a cliff, officials in Arizona, Nevada and southern California are scrambling to reverse course — either by scrapping government services they’d promised or, at the very least, by hiking taxes to pay for services created in expectation of bigger suburbs, exurbs.

Phoenix is in this fix. Shocked by a 33 percent plunge in home values between October 2007 and October 2008 alone, the city is running a $200 million budget deficit, a shortfall that’s only expected to grow. (It has petitioned the federal government for funds.)

California has an even wider hole in its battered canoe.

At a time when many resident retirees are in no mood, or shape, for tax increases, “they’re having to raise taxes or cut back services, both of which are making moving to California a lot less desirable than it has been in previous decades,” says Anthony Sanders, a professor of finance and economics at Arizona State University.

The challenges don’t end there.

Even before the Crash of ’08, the Sun Belt was being buffeted by outmigration of factory jobs abroad. In the Carolinas, for example, industries that linked up the economy, society and culture for more than a century — furniture making, tobacco and textiles — had been gutted by a decade of decline.

Warren Brown, a demographer at the University of Georgia, notes that the Sun Belt’s unbridled growth in the ’80s and ’90s was “unsustainable, bound to cool off,” and not just because of bursting housing or migration bubbles.

The limits of natural resources were poised to put the brakes on development anyway. “Long before we run out of land, we’ll be running out of water,” he said. “Water is a major issue right now.”

———

Doomsaying pundits have played the Sun Belt dirge before.

In 1981, for example, Time magazine declared Florida, a “Paradise Lost.” The state then embarked on an epic boom, in which the Miami-Fort Lauderdale-West Palm Beach corridor ballooned into the seventh-largest metro area in America.

Granted, today’s news from the Sunshine State is hardly cheery: It ranks near the top in foreclosures and near the bottom in high-school graduation rates. There’s a water crisis, an insurance crisis, a budget crisis.

So why do some experts caution that talk of Florida’s demise — and the Sun Belt’s — is exaggerated?

Among other things, Frey, the Brookings demographer, notes that in years to come “we’re going to have large numbers of immigrants in the United States who are going to help us in all kinds of ways.”

Stan Smith, a professor of economics and director of the Bureau of Economic and Business Research at the University of Florida, says tourism, the “momentum” of decades of population growth, and already extensive networks of personal connections will again draw more migrants to Florida.

Frozen credit won’t last, he says. Real estate price declines — as much as 70 percent in some Sun Belt counties — will entice buyers. And with home heating costs in the “Frost Belt” only expected to rise, Smith says, the attraction of warm weather to retiring Baby Boomers can’t be overestimated.

Recovery will take time, though, and few economists see significant growth in the Sun Belt soon. Steve Malanga, a senior fellow at the Manhattan Institute in New York City, agrees that states that have piled up surplus housing “are not going to solve it in this budget cycle or the next budget cycle. It’s going to be with them for five, six, seven years, no doubt about it.”

And yet, to say all areas across the Sun Belt are in for long-term decline is simplistic, he says. Scanning the most recent employment maps put out by the Bureau of Labor Statistics reveals “a ’belt’ in the middle of the country — Texas is part of it — that is doing quite well.” (The AP Stress Map backs up that finding, revealing a swath of comparatively unscathed counties starting in North Dakota, stretching through South Dakota, Nebraska and Kansas and ending in Oklahoma and Texas.)

Out of the nation’s 100 fastest-growing counties, the majority were in Texas (19), Georgia (14), North Carolina (11) or Utah (nine), according to U.S. Census figures last year. Raleigh-Cary, N.C., and Austin-Round Rock, Texas, were the nation’s fastest-growing metro areas.

“Obviously, the best situation is a state that hasn’t had a residential meltdown, still has a low-cost advantage, and has a weather advantage,” Malanga says. High-tax states, such as California, are going to take longer to rebound.

How AP measured the meltdown at the local level
MIKE SCHNEIDER
Associated Press Writer

The Associated Press Economic Stress Index combines three economic indicators — unemployment, foreclosures and bankruptcy — as a way of gauging how the recession has affected each of America's 3,141 counties.

That measurement is expressed on a scale of 0 to 100. The information comes from three sources:

The unemployment data comes from the Bureau of Labor Statistics, which releases a monthly report on unemployment in every county in America. The rate is calculated by dividing the number of unemployed workers by the number of eligible workers in the county.
The foreclosure rates track an inventory of all properties in various stages of foreclosure during a given month. These are collected by a private company, RealtyTrac, which compiles data for most U.S. counties.

Most of the counties that lack foreclosure data have very small populations — in March 2009 they accounted for about 1.1 percent of the U.S. population — and are heavily concentrated in midwestern states with low foreclosure rates.

For such counties that have less than 25,000 residents, the Stress Index is calculated with a foreclosure value of zero, in accordance with RealtyTrac's own methodology. The handful of counties with more than 25,000 residents that have no foreclosure data were not rated in the Stress Index.

AP reporters compiled the bankruptcy data, almost 3 million filings from the 90 U.S. bankruptcy districts. They then tabulated the number of new bankruptcy filings in the current month with the 11 months previous and divided that figure by the number of IRS tax filings in the county. This annualized rate avoids seasonal gyrations in filings.

The formula was created with the help of University of Pennsylvania professor Tony Smith, an expert in spatial statistics. It calculates the chances that someone in a county is unemployed, has a property in foreclosure or is facing bankruptcy.

The three variables are treated as independent events and weighted equally, to avoid valuing any of the three variables more than the others. If one person lost a job and their home, they count twice in the formula. If they also filed for bankruptcy, they count three times.

That gives us a numerical value on a scale of 1 to 100. If a county has an Economic Stress score of 20, this means that there is a 20 percent chance that a random worker, property owner or taxpayer in the county is suffering at least one of these three misfortunes.

One cautionary point: When ranking the hardest-hit places, it's best to focus on counties with more than 25,000 residents, about 95 percent of the U.S. population. This avoids a bias that comes from sparsely populated counties. After all, a job loss in a county of 100 residents has a much bigger proportional impact then one in a county with 100,000 people.